Question of the Day

Whose side of the story do you believe?

Story TOpics

If you think you’ve heard everything about how politicians describe legislation, well, think again. One hundred four years ago, President Woodrow Wilson, in a signing ceremony with Cabinet members and congressional leaders, called the legislation establishing the Federal Reserve a “Constitution of Peace” with business interests.

His audience at the time applauded wildly, according to press reports, but never in his subsequent remarks did Wilson explain what he meant by words usually ascribed to foreign policy matters. Nor did the press or anyone else pursue an explanation.

The law was designed to do two things: give the Fed the authority to regulate interest rates so as to eliminate the frequent “panics” that struck the nation when money was too scarce or too ample; and establish a new banking system with a central bank and currency, dubbed Federal Reserve notes. At the time, the currency aspect seemed predominant because headlines referenced the passage of the Glass-Owens Currency Act.

Mind you, this was the third attempt at a central institution, with the Bank of the United States established under President George Washington and its renewal vetoed by President Andrew Jackson in 1832. The party lines were clear on a central bank: reformers, such as Jackson, believed the bank a monopoly, catering to the privileged class; conservatives, such as Washington’s Secretary of the Treasury, Alexander Hamilton, favored it.

The irony of the Wilson administration was that it was identified with reform legislation — the so-called Progressive Movement — and its backing of the Federal Reserve therefore made no sense.

But there was more hooey to the legislation: The president noted this achievement of the first year of his administration “cannot be called a partisan measure” because a “considerable number of Republicans cast votes for it.” In reality, as the Washington Herald pointed out in the same news story, only three Republicans and one Progressive voted for the bill in the Senate. “Otherwise,” noted the Herald, “the vote was a strictly party vote.”

Although the bill was first introduced in Congress in March, the Democrats jammed the measure through the Senate by a divided vote of 54 to 34 on Dec. 19, 1913. A conference committee approved it on Dec. 22 (the House voting 298 to 60, with 76 not voting). The Senate passed the conference report the next day by 43 to 25, with 27 not voting.

Not a single Senate Democrat opposed the conference report, only two in the House, and the president signed it the same day, three-and-a-half hours after it cleared the Senate.

The liberal magazine, The Nation, had a different take on the matter: “The drawing near of the Christmastime seemed to calm the savage beast of the filibuster, and to still the passions of the makers of long speeches … The whole thing was a wonderful example of what Christmas can do in the sphere of legislation.”

Why so many nonvoters on such groundbreaking legislation?

Because absentees had gone home for the holidays, thinking that past protocol in both houses would prevail, meaning that no serious business would be taken up during the season of good will. In short, it was no accident that virtually all the nonvoters happened to be opponents.

And the act’s 30 sections were tough reading.

That the legislation was a snow-job was detected by the Herald, which observed that the president seemed too reserved, perhaps a bit embarrassed for the sneaky political tactics, for such a historic act. In the Herald’s words: “The ceremony of signing the bill lacked something of the impressiveness of the signing of the Underwood-Simmons tariff law Oct. 3 [which reduced tariffs and implemented the Sixteenth or income tax Amendment]. The president did not seem as moved as he did on the previous occasion.”

To be sure, big bankers used their clout to get the bill over the finish line, and, as I point out in my high school American history textbook, “The nation’s new banking system did little to reduce the power of the financial tycoons.”

Moreover, the ever-vigilant Herald made certain in an editorial that it expressed its “one reservation: our concern as to the make-up of the Federal reserve board and of the regional bank boards, in so far as they are political. If such appointments as lie in the President’s hands are not filled with utter disregard of political consideration, and with every stress laid upon ability, experience, and character, then, indeed, we shall find ourselves in a morass of incalculable width and depth.”

But the political turkey had already been stuffed long before Christmas. In order to get the measure through a Senate committee on a tie vote, James A. Reed of Missouri, broke the tie, getting his richly obscure state two Federal Reserve banks, in St. Louis and Kansas City, no matter that some big population states got nothing.